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CIRCULAR No. 44/1999/TT-BTC OF APRIL 26, 1999 GUIDING TAX PREFERENCES FOR COOPERATIVES

Pursuant to the Law on Cooperatives, passed on March 20, 1996, by the National Assembly and the documents guiding the implementation thereof;

Pursuant to the current tax legislation and legislation on the land-related levies;

The Ministry of Finance hereby guides the implementation of tax preference regime for cooperatives as follows:

I. SUBJECTS AND SCOPE OF APPLICATION

Subjects entitled to tax preferences provided for in this Circular are cooperatives, unions of cooperatives and people�s credit funds (hereafter referred collectively to as cooperatives), which are established and granted business registration certificates under the Law on Cooperatives, passed on March 20, 1996 by the National Assembly as well as the documents guiding the implementation thereof.

II. TAX PREFERENCE REGIME

The preferences of each kind of tax applicable to each type of production and business of cooperatives are specified as follows:

1. Regarding the excise:

a/ Cooperatives shall pay the excise according to Point 2, Section I of Circular No. 69-TC/TCT of November 5, 1996 of the Ministry of Finance.

b/ Stores, shops and units with business cost-accounting dependent on cooperatives shall pay the excise according to Point 3, Section I of Circular No. 69-TC/TCT of November 5, 1996 of the Ministry of Finance.

c/ Cooperative members and groups of cooperative members (referred collectively as cooperative members) performing tasks assigned by their cooperatives shall not have to pay the excise separately. Cooperative members are determined as follows:

+ For members of commercial cooperatives: They must meet all conditions and have interests as well as obligations of cooperative members as stipulated in the Government�s Decree No.41/CP of April 29, 1997 promulgating the Model Statute of Commercial Cooperatives;

+ Regarding members of agricultural cooperatives: They must meet all conditions and have interests as well as obligations of cooperative members as stipulated in the Government�s Decree No.43/CP of April 29, 1997 promulgating the Model Statute of Agricultural Cooperatives;

+ For members of industrial and construction cooperatives: They must meet all conditions and have interests as well as obligations of cooperative members as stipulated in the Government�s Decree No.44/CP of April 29, 1997 promulgating the Model Statute of Industrial and Construction Cooperatives;

+ For members of communication and transport cooperatives: They must meet all conditions and have interests as well as obligations of cooperative members as stipulated in the Government�s Decree No.45/CP of April 29, 1997 promulgating the Model Statute of Communication and Transport Cooperatives;

+ For members of aquatic resource cooperatives: They must meet all conditions and have interests as well as obligations of cooperative members as stipulated in the Government�s Decree No. 46/CP of April 29, 1997 promulgating the Model Statute of Aquatic Resource Cooperatives.

In order to have ground for determination of the excise exemption for cooperative members, a cooperative shall have to fully account the income, expenditures and work performance results of each cooperative member into the cooperative�s production and business results. If the production and business results of each cooperative member is not accounted into the general production and business results of the cooperative, the excise exemption shall not be effected under the guidances in this Circular.

2. Regarding the enterprise income tax:

a/ For newly-established cooperatives:

a.1. The newly-established production, construction or transport cooperatives shall enjoy enterprise income tax exemption for the first 2 years after the taxable income is generated and be entitled to 50% reduction of the payable enterprise income tax amount for 2 subsequent years. Where the cooperatives are established in mountainous or island areas and other areas facing with difficulties, the tax reduction duration shall be prolonged for 2 more years.

a.2. The newly-established production, construction or transport cooperatives operating in the fields or trades eligible for investment preferences shall enjoy tax exemption and reduction as follows:

+ Investment in districts other than those in mountainous and island areas as well as other areas facing with difficulties shall enjoy income tax exemption for the first 2 years after the taxable income is generated, then 50% reduction of the payable income tax amount for 3 subsequent years.

+ Investment in areas meeting with difficulties shall enjoy income tax exemption for the first 3 year after the taxable income is generated and 50% reduction of the payable income tax amount for 5 subsequent years.

+ Investment in districts of ethnic minorities, mountainous and island areas shall enjoy income tax exemption for the first 4 years after the taxable income is generated and 50% reduction of the payable income tax amount for 7 subsequent years.

+ Investment in districts of ethnic minorities in high- mountainous areas shall enjoy income tax exemption for the first 4 years after the taxable income is generated and 50% reduction of the payable income tax amount for 9 subsequent years.

a.3. The newly-established business and services cooperatives operating in the fields and trades eligible for investment preferences shall enjoy tax exemption and/or reduction as follows:

+ Investment in districts other than those in the ethnic minority, mountainous and island areas as well as other areas meeting with difficulties shall enjoy 50% reduction of income tax amount payable in the first 2 years after the taxable income is generated.

+ Investment in areas meeting with difficulties shall enjoy income tax exemption for the first year after the taxable income is generated and 50% reduction of the payable income tax amount for 3 subsequent years.

+ Investment in districts of ethnic minority, mountainous and island areas shall enjoy income tax exemption for the first 2 years after the taxable income is generated and 50% reduction of the payable income tax amount for 4 subsequent years.

+ Investment in high-mountain districts of ethnic minorities shall enjoy income tax exemption for the first 2 years after the taxable income is generated and 50% reduction of the payable income tax amount for 5 subsequent years.

For cooperatives engaged in production and general business activities with the production (or construction or transport) function prescribed in their business registration certificates, if they can account the revenues and expenditures separately for each type of activity, they shall be entitled to the preferences for each production and business activity as provided for in this Circular. Where the separate cost-accounting cannot be made, they shall enjoy only preferences provided for business and services cooperatives.

b/ For cases of production expansion investment:

Production, construction or transport cooperatives investing in new production chains, scope expansion, technological renovation, ecological environment improvement, raising of production, construction or transport capacity shall enjoy enterprise income tax exemption for the increased income amount of the first year and 50% reduction of the income tax amount payable for the increased income brought about by new investment for 2 subsequent years.

The determination of the increased income amount brought about by new investment and eligible for enterprise income tax exemption and reduction as mentioned in this Clause shall comply with the provisions at Clause 3, Section I, Part E of Circular No. 99/1998/TT-BTC of July 14, 1998 of the Ministry of Finance guiding the implementation of the Government�s Decree No. 30/1998/ND-CP of May 13, 1998 detailing the implementation of the Law on Enterprise Income Tax.

c/ For cases of moving to places eligible for investment preferences:

Business cooperatives which move to the mountainous or island areas as well as other areas meeting with difficulties according to the Government�s stipulations shall enjoy enterprise income tax exemption for the first 3 years after the taxable income is generated.

d/ For a number of other specific cases:

- Cooperatives having incomes from cultivation, husbandry and aquaculture shall not be subject to the enterprise income tax.

- Cooperatives providing technical services in direct service of agricultural production, forestry, fishery and salt-making such as water supply and drainage, soil preparation, goods preservation, protection of domestic animals and crops, plant protection, manufacture and repair of salt-making, agricultural or fishing instruments and irrigation services� shall enjoy enterprise income tax exemption on the income from such activities. The service activities in service of other objects and not in direct service of the agricultural production shall not be entitled to tax preferences stipulated in this Point.

- Rural cooperatives engaged in electricity supply for peasants� households and cooperatives engaged in rudimentary loading/unloading activities shall enjoy enterprise income tax exemption for the first 2 years after the taxable income is generated from such activities.

e/ Competence for consideration and ratification of enterprise income tax exemption/reduction and dossiers of application therefor:

The competence for consideration and ratification of enterprise income tax exemption/reduction and the dossiers of application therefor shall comply with the provisions at Sections II, III, Part E, Circular No.99/1998/TT-BTC of July 14, 1998 of the Ministry of Finance guiding the implementation of the Government�s Decree No.30/1998/ND-CP of May 13, 1998 detailing the implementation of the Law on Enterprise Income Tax.

3. On the registration fee:

a/ The registration fee preferences are specified for cases as follows:

- Production means of cooperative members (which are subject to the registration fee) for which the registration fee has been paid and which are contributed as capital to the cooperative shall, when the cooperative registers its ownership right and use right, be exempt from the registration fee;

- Production means over which the cooperative has registered its ownership right and use right shall, when being transferred among the cooperative members, not be subject to the registration fee;

- Where the cooperative has to return the production means to cooperative members, who in their turn have to register their ownership right and use right, the registration fee must be paid.

b/ Competence for consideration and ratification of registration fee exemption/reduction and dossiers of application therefor:

- A cooperative�s dossier of application for registration fee exemption/reduction must be sent to the agency managing the registration fee collection of the locality where the cooperative is headquartered, including:

+ The business registration certificate, issued under the Law on Cooperatives of March 20, 1996, which clearly determines the business lines as well as the goods items to be manufactured and/or dealt in;

+ The papers related to property of which the registration is subject to fee payment as requested.

- The head of the agency managing the registration fee collection shall have the competence to decide the registration fee exemption and reduction for cooperatives� properties according to the provisions of this Circular.

III. ON LAND RENTALS

1. Cooperatives in rural mountainous and island areas performing the task of providing services directly for agricultural and forestry activities, aquaculture or salt-making, if having to rent land from the State for the construction of their offices and/or workshops, shall enjoy land rental exemption for the first 5 years after they are granted business registration certificates under the Law on Cooperatives.

2. Cooperatives (other than those mentioned in Point 1, this Section) which have been granted business registration certificates under the Law on Cooperatives and rent land from the State under the land legislation shall enjoy 50% land-rental reduction for the first 2 years after they are granted business registration certificates under the Law on Cooperatives. In cases where the land rentals have been paid in advance to the State, such money amount shall be dealt with according to the provisions of the current land legislation.

3. Competence for consideration and ratification of land-rental exemption/reduction and dossiers of application therefor:

- A cooperative�s dossier of application for land-rental exemption/reduction must be sent to its managing tax agency, including:

+ The business registration certificate issued under the Law on Cooperatives of March 20, 1996, which clearly determines the business lines as well as the goods items to be manufactured and/or dealt in;

+ The tax payment declaration and registration paper with certification by the tax agency.

- The head of the provincial/municipal Tax Department shall consider and decide the land rental exemption/reduction for cooperatives in accordance with this Circular.

IV. ORDER AND PROCEDURES FOR CONSIDERATION OF TAX EXEMPTION/REDUCTION

In all cases, the cooperative that proposes tax exemption and/or reduction shall have to compile a dossier of application therefor as prescribed and send it to the tax agency managing such cooperative. The cooperative�s dossier of application for tax exemption and/or reduction sent to the tax agency must be the original one that has gone through administrative procedures set for documents. Where the dossier includes copies: if the copies are documents and vouchers issued by other agencies or units such as the business registration certificate, the establishment decision�, they must be affixed with the notarization stamp; if the copies are documents of the cooperative itself such as the final account settlement reports or the related vouchers, they must be affixed with stamp of the cooperative.

When receiving the cooperative�s dossier of application for tax exemption and/or reduction, the tax agency managing such cooperative shall have to examine the dossier, clearly determining whether the dossier has been compiled properly and fully as prescribed or not; whether it falls in cases eligible for tax exemption and/or reduction as prescribed by law or not, and compare the dossier with the actual situation of the cooperative, clearly defining data and circumstances related to the application for tax exemption and/or reduction.

If the dossier is insufficient or erroneous, the cooperative shall be requested to supplement or readjust it promptly.

Where the cooperative�s proposal does not fall in cases eligible for tax exemption and/or reduction as prescribed by law, the tax agency shall have to reply the cooperative in writing, stating the reasons therefor.

In cases where the consideration of tax exemption and/or reduction falls beyond the competence of the tax agency managing the cooperative, the tax agency shall, after examining the dossier and the actual situation of the cooperative, submit a written proposal to the higher-level tax agency for handling. Such a proposal must be sent together with the cooperative�s entire dossier which has gone through examination and the tax agency shall, at the same time, notify in writing the cooperative of the address to which the latter�s dossier has been forwarded. The dossier sent to the higher-level tax agency must be attached with a list of its contents.

In cases where the tax exemption and/or reduction is approved, the tax agency deciding such exemption and/or reduction shall have to issue a decision thereon and send it to the cooperative entitled to such tax exemption and/or reduction.

Basing itself on the tax exemption and/or reduction decision, the tax agency shall conduct the final settlement of the payable tax amount with the cooperative and re-determine the latter�s loss-profit results and other State budget remittances.

The agency considering and deciding tax exemption and/or reduction shall have to keep and manage the tax exemption/reduction dossier in accordance with the provisions of law.

Within 30 days after receiving the dossier, the tax agency deciding tax preferences for the cooperative stipulated in this Circular shall have to issue a tax exemption/reduction decision or notify the concerned establishment of the reasons for which it is entitled to tax preferences or not.

V. ANSWERS TO QUERIES AND SETTLEMENT OF COMPLAINTS

The settlement of problems and complaints and the time-limit for giving replies to questions and/or settlement of complaints about taxes for cooperatives shall comply with the provisions of Circular No.51/1998/TT-BTC of April 16, 1998 of the Ministry of Finance guiding the procedures for tax payment and collection, the competence for consideration of tax exemption and reduction, the final settlement of income tax, profit tax as well as the procedures for the settlement of tax-related problems.

VI. ORGANIZATION OF IMPLEMENTATION

- This Circular takes effect from January 1st, 1999 and replaces Circular No.78/1997/TT-BTC of November 4, 1997 of the Ministry of Finance, Circular No.25/1998/TT-BTC of March 4, 1998 amending and supplementing Circular No.78/1997/TT-BTC of November 4, 1997 of the Ministry of Finance guiding the application of tax and financial preferences for cooperatives under the Government�s Decrees No.15/CP and No.16/CP. All the earlier guidances of the Ministry of Finance in this field which are contrary to this Circular or are not guided in this Circular shall cease to be effective.

- The implementation of the contents on tax preferences for cooperatives before this Circular takes effect shall still comply with the provisions of the earlier guiding documents of the Ministry of Finance. Where there�s a change in preferential duration or new preferences arise in this Circular as compared with the earlier documents of the Ministry of Finance, such disparities shall be adjusted for application in the remaining preferential duration (if any) from the date this Circular takes effect.

- The newly-established cooperatives entitled to tax and financial preferential regime under the guidance in this Circular are those which have been newly set up or transformed (if any) and granted business registration certificates under the Law on Cooperatives after this Circular takes effect.

- The cooperatives� debt settlement after this Circular takes effect shall comply with the provisions of the Prime Minister�s Decision No.95/1998/QD-TTg of May 18, 1998 on debt settlement in the second phase and the legal documents guiding the implementation thereof.

- Cooperatives entitled to preferences under the guidance in this Circular shall also be entitled to other preferential policies (if any) in accordance with the provisions of law.

- The financial and tax agencies of the localities shall have to supervise, urge and guide cooperatives in the latter�s strict compliance with the current tax and financial policies as well as the guidance contents provided for in this Circular.

- All cases of violating the provisions of this Circular shall be dealt with according to the provisions of the current law.

In the course of implementation, if any problems arise, the units are requested to promptly report them to the Ministry of Finance for study and additional guidance.

For the Minister of Finance

Vice Minister

TRAN VAN TA